ADDL. COMMISSIONER OF INCOME TAX vs U.P. CO-OPERATIVE FEDERATION LTD.

BY THE COURT

Satish Chandra, C.J. - For the assessment year 1961-62 the question arose whether the assessee-co-operative society was exempt from tax u/s 14(3)(iii) of the Indian Income Tax Act, 1922. This question arose because the assessee-society used to advance money to its member-co-operative societies to enable them to buy and sell basic thins to their consumer-members. This raised the point whether this activity constituted an investment on the part of the assessee-society within the meaning of S. 14(3)(iii) of the Act. The matter ultimately came to this Court and a Bench in M/s. U.P. Co-operative Federation Ltd. vs. Commissioner of Income Tax, held that the word investment as occurring in S. 14(3)(iii) has not been defined in the Act. All that the section requires is that the interest or dividend should be derived from investment. The word investment is a word of very wide import, and cannot be confined only to securities or to investment or banking business. A capital investment is also an investment as popularly understood. It includes investment of circulating capital. The Bench held that the income received by way of interest paid by another society was exempt. The same questions have arisen in respect of the assessment years 1962-63 and 1963-64. At the instance of the Commissioner the Tribunal has referred these questions for our opinion.

There are four questions dealing with different kinds of advances made by the assessee to its member-co-operative Societies. But the principal point which all the four questions raised is as to the meaning of investment as used in S. 81(3) of the Act of 1961 which is identical to S. 14(3)(iii) of the Act of 1922. In view of the decision of the Bench in respect of previous year, with which we agree, we have no hesitation in holding that the word investment would cover the various kinds of advances made by the assessee-Society to its member-co-operative Societies. We, therefore, answer all the four questions in favour of the assessee and against the Department. The assessee is entitled to costs, which we assess at Rs. 200/-.